We are currently in tough financial times. This can make investment decision somewhat difficult as it is harder than normal to predict which stocks will rise and which will fall. So which type of investments should private investors be looking at?
New Businesses
During and soon after a recession there is usually a flurry of new businesses starting up. This is partly due to many talented people losing their jobs and deciding to start their own business as it can be difficult to find employment. This then leads to more employment opportunities being created and therefore helps to move the country out of recession.
Investing in new businesses can be a great opportunity, although it is important to choose the right business. Half of new businesses fail in the first year, so choosing the wrong one will result in losing all of your investment. One of the advantages of investing in a new business is that stocks will be low, meaning the risk may not be as great as it might with established businesses. And because they start low, they have the potential for significant growth. You never know how a new business will do, so there is a risk of rapid failure but there is also the potential for a fast rise.
Recession Proof Businesses
Although many businesses are affected by a recession, this doesn’t apply to all. Some sectors even see growth during a recession, for example discount clothing. So a wise move is to think about the types of businesses that may benefit, or at least not lose out, during a recession. There are things that people always need, like gas, electricity and food. Just looking at businesses that haven’t yet been impacted may suggest that these will be unlikely to suffer now.
Of course, make sure you avoid the type of businesses you think face problems in tough times. People tend to cut down on things they don’t need. Most people don’t rush out to buy the latest expensive commodities unless they have spare cash.
Another area to look at are businesses who you believe have already hit rock bottom. This can be a little risky, but if you think they will eventually increase in value it may be worth a punt. You will benefit from low stocks and can then profit if your instincts prove to be right. In the long term this can turn into a profitable investment.
Investment Trusts
Investment Trusts can be a wise move for investors who aren’t really sure what they want to invest in. If you pay into an investment trust your investment will be invested alongside other investors meaning a better potential return. This also has the advantage of using the knowledge of experts. The investment companies’ experts will decide where your investment goes, a particular advantage for those not confident that they will be able to find favourable investments themselves.
Real Estate
House prices have fallen during the last couple of years and there is not much doubt that they will eventually rise again. With any investment it is best to buy for as little as possible, and with real estate now could be the time. Buying now and selling when prices again reach a peak in a few years could be a good move. This is a long term investment though, as it will take a while for your potential profit to maximise.
Beatrice Sareen (c)
